First-Time Homebuyer Loan Options Explained

First-time buyers have more loan options than most people realize, ranging from zero down payment programs to specialized conventional products built specifically for buyers with limited savings.

FHA Loans

The most common first-time buyer program. Just 3.5% down with a 580 credit score, or 10% down with scores as low as 500. The entire down payment can be a gift. Mortgage insurance applies for the life of the loan in most cases, which is the main tradeoff against conventional financing.

Conventional 97

A conventional option requiring just 3% down, designed specifically for first-time buyers. Private mortgage insurance applies but cancels automatically once you reach 20% equity, unlike FHA's insurance.

HomeReady and Home Possible

Fannie Mae's HomeReady and Freddie Mac's Home Possible programs offer 3% down with more flexible income and credit guidelines than standard conventional loans, and often reduced mortgage insurance costs for qualifying buyers.

VA Loans

For eligible veterans, active duty service members, and some surviving spouses. Zero down payment, no mortgage insurance ever, and typically the most favorable rates available to any borrower type.

USDA Loans

Zero down payment for eligible rural and suburban properties, with income limits around 115% of the area median. Many buyers are surprised how much of the map actually qualifies as "rural" under USDA's definition.

How to choose

If you qualify for VA or USDA, they're almost always the strongest option due to the zero down payment and, for VA, no mortgage insurance at all. Otherwise the choice usually comes down to FHA versus conventional, which depends mainly on your credit score and how you weigh mortgage insurance that cancels (conventional) against mortgage insurance that doesn't (FHA), against FHA's more flexible credit requirements.